Thursday 8 April 2010 12.13 EDT
First published on Thursday 8 April 2010 12.13 EDT

The City received a boosttoday when the Indian company Essar Energy chose the London Stock Exchange to make one of the largest flotations of recent years.

The oil and power firm will raise about $2.5bn (£1.6bn) by issuing 20-25% of new shares in the company, making it the largest flotation in London since Russian bank VTB's listing in 2007. The company will use the proceeds to build more power plants and refineries in India as well as produce more oil, gas and coal.

Bankers and business leaders have been fretting that the tax and regulatory burden in the UK was putting off companies from listing in London. In January, Russian aluminium giant Rusal ran by oligarch Oleg Deripaska snubbed the City when it decided to float in Hong Kong.

But Essar vice-chairman Prashant Ruia, whose float will be the largest ever overseas public offering by an Indian company, told the Guardian: "We did look at other options. Hong Kong has a better appreciation of China. But the understanding of the Indian economy and of emerging markets is better in London."

The listing also underlines the strength of emerging market countries such as India, whose economies are still growing at a rapid pace despite the global slowdown, which has hit those in Europe and the US hard. The country's economy grew by 6.7% last year and the Delhi government is forecasting average annual growth of 9% between 2007 and 2012.

Essar Energy, part of the Essar Group conglomerate, owns 12% of India's refining capacity. It is also planning to build 10GW of new power plants in India – it currently operates a tenth of this – by 2014. In total, for a population of 1.2 billion, India has 150GW capacity, which will double within five years as energy consumption per capita soars. According to the World Bank, 44% of Indian households do not have any access to electricity at all.

Several high-profile flotations by private equity owned UK-based businesses have been pulled this year, including retailer New Look, travel bookings group Travelport and Merlin Entertainments, the tourist attraction business behind the London Eye, Legoland and Alton Towers.